Carrying out its aforesaid bonus payment plans, on Dec. 31, 2009, Wells Fargo & Co. (WFC) announced that it has paid stock bonuses worth $25 million to its top four executives. The company also declared its denial for any cash bonus payments for the fiscal year 2009. Moreover, disablement of selling this bonus stock for at least the next five years, subject to company performance, came in as another rider of bonus payments.
Wells Fargo has taken a method similar to the one that Goldman Sachs Group (GS) had applied last week for bonus payments. Morgan Stanley (MS) is also considering one such proposal.
According to the announcement, Wells Fargo will pay bonuses in the form of stock, namely the “retention” shares of its common stock. By issuing these shares for a three-year vesting period subject to achieving a defined performance target, the company retains the authority to seize the stock bonus of the executives in case they join a rival company. However, any cash bonus payment for 2009 has been completely nixed to avoid any distress and undue misunderstanding in the market.
As intended, the announcement of stock bonuses came in just after Wells Fargo exited the Troubled Asset Relief Program (TARP) on Dec. 23, 2009. Wells Fargo’s decision was crucial for the retention of its top four executives, who are significantly responsible for the company’s performance. Despite the global economic turmoil, Wells Fargo is believed to have attained the current level of stability and a vital Wachovia acquisition primarily owing to its meticulous and diligent managerial force. In Aug. 2009, the company had also raised the salaries to reward these executives.
However, we believe that Wells Fargo’s current attempts to exit TARP followed by augmentations in stock-based compensation will not necessarily quiet the industry outcry. The company has to show resonant improvement in its results and rebound to its historical levels in the upcoming quarters as the economy treads the road of recovery. Hence, we recommend a Neutral stance on the stock.
Read the full analyst report on “WFC”
Read the full analyst report on “GS”
Read the full analyst report on “MS”
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